This paper is based on a simple proposition, which we believe but cannot prove: If taxpayers support the way their tax dollars are spent, they are more likely to comply voluntarily and less likely to change their behavior to avoid tax. To show that our claim is plausible, we offer direct evidence from a literature involving experiments, draw on the more general economics and psychology literature on prosocial behavior, and also invoke philanthropy as a “real world” analogy; after all, charitable donors contribute money voluntarily (indeed, 2% of the U.S. GDP), largely because they believe in the way their contributions are used.
Our claim has a number of concrete policy applications. The government should publicize popular uses of tax dollars, and go to particular lengths to avoid the negative publicity associated with waste. The government also should make broader use of taxes, like lotteries for education and the social security tax, which are dedicated to specific (popular) spending programs. In addition to proposing greater reliance on user fees, we offer a new justification for subsidiarity – the idea that services should be provided by the lowest level of government competent to do so – on the theory that taxpayers will feel more connected to a local or state government’s activities and less inclined to free ride within a homogeneous local community. We also suggest ways to adjust audit strategy and penalty structure to enhance prosocial motivations. Furthermore, we urge the government to seek voluntary contributions from taxpayers for programs they especially value. Finally, we explore the more controversial step of allowing taxpayers to allocate some of their tax bill to programs they value, and conclude that, at most, taxpayers should be permitted to do so only in a very limited way.
Law | Law and Economics | Tax Law
Center for Law and Economic Studies
The Charles Evans Gerber Transactional Studies Center
David M. Schizer & Yair Listokin,
I Like to Pay Taxes: Taxpayer Support for Government Spending and the Efficiency of the Tax System,
Tax Law Review, Vol. 66, p. 179, 2013; Yale Law School John M. Olin Center for Studies in Law, Economics & Public Policy Research Paper No. 456; Yale Law School Public Law Working Paper No. 263; Columbia University School of Law, The Center for Law & Economic Studies Working Paper No. 427
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/2474